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Potts v. Maryland Games, LLC

United States District Court, D. Maryland, Southern Division

April 8, 2019

KRISTEN H. POTTS, Plaintiff,
v.
MARYLAND GAMES, LLC, Defendant.

          MEMORANDUM OPINION

          Charles B. Day United States Magistrate Judge.

         Before the Court is Plaintiff's Motion for Mandatory Preliminary Injunction (“Plaintiff's Motion”)(ECF No. 30). The Court has reviewed Plaintiff's Motion and the opposition and reply thereto. No. hearing is deemed necessary. Local Rule 105.6 (D. Md.). For the reasons set forth below, the Court GRANTS Plaintiff's Motion.

         I. Factual Background

         The operative documents that are before the Court without dispute are the following: 1) a Promissory Note (the “Note”) negotiated between Technology Exclusive, Inc. (“TE”) and Plaintiff; 2) a Security Agreement between TE and Plaintiff; and 3) a UCC Financing Statement (the “UCC Filing”) filed in the State of Nevada, which happens to be the state of TE's Articles of Incorporation. The UCC Filing identifies TE as the debtor and Plaintiff as the secured party. The execution of each of these documents preceded TE's involvement with Defendant.

         On or about September 14, 2017, TE and Defendant executed an Asset Purchase Agreement (the “APA”) for the sale of all of TE's assets to Defendant. In October 2018, Plaintiff issued notices of default to TE with respect to the Note and Security Agreement. As a result of the alleged default, Plaintiff invoked the authority to take possession of all collateral identified in the Security Agreement. Plaintiff contends that said collateral includes, but is not limited to, video lottery games. The Note reflects that Plaintiff is entitled to damages, presently estimated to be more than $1.5 million, from TE as a result of default. Through it all, Defendant asserts a lack of previous knowledge of the existence of the Note, the Security Agreement, or the UCC Filing between Plaintiff and TE.

         II. Analysis

         a. Plaintiff's Motion for Preliminary Injunction.

         At the heart of Plaintiff's Motion is her significant concern regarding her ability to collect on any judgment that she hopes to obtain as a result TE's default. Pursuant to a provision in the Security Agreement, Plaintiff's prosecution of TE is being waged in arbitration. In her effort to recover the collateral posted by TE, Plaintiff brings the present suit against Defendant.

         In light of the funding sources leading to the recent corporate creation of Defendant, Plaintiff opines that Defendant is not adequately capitalized. Plaintiff believes that obtaining a judgment against Defendant is likely to be worthless if the ordinary processes of litigation remain unchanged. Plaintiff therefore seeks injunctive relief in an effort to maintain the status quo regarding the video lottery games and the revenues generated by them, which are currently being operated by Defendant. Said lottery games are reportedly in the possession of: 1) Chesapeake Amusements, Inc. d/b/a/ Chesapeake Beach Resort and Spa's Rod ‘N' Reel Restaurant; and 2) Eagle Amusements, Inc. d/b/a/ Trader's Seafood, Steak and Ale Restaurant. Plaintiff's request for injunctive relieve seeks to require Defendant to deposit with the Court, or alternatively with Defendant's counsel's trust account, certain revenues from the gaming machines and contracts.

         The single issue before the Court is whether Plaintiff can satisfy the standard necessary to obtain a preliminary injunction. Guidance is provided by DiBiase v. SPX Corp., 872 F.3d 224 (4th Cir. 2017). As stated therein, “a preliminary injunction is an extraordinary remedy intended to protect the status quo and prevent irreparable harm during the pendency of a lawsuit.” Id. at 230. In order to prevail, Plaintiff must show that she is likely to succeed on the merits, likely to suffer irreparable harm without injunctive relief, that the balance of equities tip in her favor, and that the relief is in the public interest. Id. The Court is persuaded that Plaintiff has met her burden.

         b. Success on the merits.

         The essence of Plaintiff's claims sound in the law of conversion. Conversion is the intentional tort of exercising ownership or dominion over the property of another inconsistent with that person's right of ownership. Nickens v. Mount Vernon Realty Grp., LLC, 429 Md. 59, 54 A.3d 742 (2012). Under Maryland law, Plaintiff must show that Defendant, without authority or permission, physically interfered with Plaintiff's use or enjoyment of the gaming machines. To establish her claim, Plaintiff must show the superior right to possess or enjoy said machines.

         Under Maryland law, if Plaintiff has a valid Security Agreement, her interest in the collateral identified therein continues despite the sale under the APA to Defendant. “A security interest . . . continues in collateral notwithstanding sale . . . or other disposition thereof unless the secured party authorized the disposition free of the security interest . . . .” Md. Code Ann. Com. Law 9-3-15(1)(LexisNexis 1999).[1][2] Plaintiff is not seeking injunctive relief regarding the disposition of collateral, as it appears that the gaming machines are actively in service. There are simply no “proceeds” to attach.

         Regarding the claim for conversion, Defendant's arguments are limited to notions of acting in “good faith.” Specifically, Defendant asserts the lack of actual knowledge of the security interest as well as the purchase of the assets for fair value. Defendant apparently took great pains to obtain representations from TE that it was authorized to execute the APA without encumbrance. ...


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